TransUnion: Home equity borrowing surge on the horizon

Home equity borrowing is poised to soar as several dynamics are creating a market ripe for origination growth, according to a study by TransUnion.

TransUnion said its forecast reflects the fact that household home equity, currently nearing $15 trillion, has surpassed its prior housing bubble peak in the first quarter of 2006 by more than $1 trillion. Home equity levels have been rising at a rapid rate each year since hovering around $6 trillion between 2009 and 2011.

“There are ample signs that the home equity lending market is poised for growth. Home prices have surpassed 2005 boom levels and household home equity has grown even faster,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “Increasing consumer debt makes debt consolidation an appealing option and home equity can be the most economically attractive path to do just that. The recession caused a home equity lending pull-back, which all but eliminated consumer marketing and education. We think there’s an opportunity to re-introduce that education to consumers and help them evaluate how and when tapping home equity could make sense.”

TransUnion said the home equity loan market may accelerate given these new market dynamics, noting that HELOCs represented the greatest number of home equity originations in 2017 at 1.2 million. With a 2.3% year-over-year growth from 2016, HELOCs present a market opportunity for lenders. TransUnion also noted that HELOCs have extremely low vintage default rates and that an estimated 70 million homeowners are likely to qualify for a home equity product.

“With rising interest rates and increases in home prices outpacing wage growth, homeowners are more likely to stay in their current homes, rather than ‘move up.’ This leads to a higher likelihood of improving their existing home and home equity can be great tool for that,” Mellman said.